Decide how much money you need to start

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Many new businesses need start-up capital. Find out the main options of raising funding for your new business.

Before you start a business, it’s best to know how much money it will cost and make sure you have access to sufficient capital. It’s important to be realistic with all of your figures, and to estimate costs and revenue as accurately as possible so you can calculate how much you need.

How much money do you need?

1. Set-up costs (money you’ll need before you start operating).
2. Initial working capital (money you’ll need to run the business until you start making a profit).

Set-up costs

• A web designer would have low costs: a computer, software, possibly liability insurance and any legal costs setting up a company.
• A builder would have higher costs: tools, vehicle, and equipment for any specialized work.
• A restaurant’s set-up costs may include kitchen equipment, seating and initial food ingredients.

• Rent deposits and any building renovations before you open for business.
• Licenses and permits.
• Employee recruitment and training.
• Initial inventory or raw materials.
• Signage, marketing materials, web site development and advertising.

Working capital

Once they open, many businesses don’t have enough sales revenue to cover overhead costs. Time is needed to start and generate customers to cover all the overhead (and make a profit). Until this happens you’ll ideally have spare cash in the bank (also called “working capital”), to pay for monthly expenses until sales can cover all your monthly costs.

Work this out:

• Begin by estimating your monthly costs (wages, utilities, internet, advertising, rent – everything). This will give you a monthly amount you need as a minimum to stay in business.
• Transfer these totals to a cash-flow template.
• Now add your sales estimates for the first six months (being realistic and remember some businesses don’t have any sales initially). Each month you’ll see how much working capital you are short.
• If you have customers on credit or account, they rarely pay on time. Factor into your calculations that you may need to wait 30, 60 or 90 days for payment.

Cost out every item and get quotes

You can get accurate figures for set-up costs and working capital expenses by rolling up your sleeves and carefully researching all costs.

• Get written quotes from suppliers for each service or product you need to run your business. Ask them to guarantee the quoted price for at least 90 days; that way, you won’t have any surprises when you go to start-up your business.
• If you are leasing or buying premises and must pay for utilities, contact the utility company to find out the monthly cost. Ask about any anticipated rate changes.
• Research online or contact vendors directly to identify costs for office supplies, internet access, telephone charges, furniture, alarm systems, data storage and office cleaning.
• Include any transportation or travel costs you may incur to get your business going.

Contingency budget

It can be difficult to foresee all the costs you will incur to get your business up and running. Inevitably, there will be some costs that you didn’t expect, or purchases that simply end up costing more money than your earlier estimate. Costs can also change if there is a substantial period between when you priced something out and when you buy it – an insurance rate obtained last year may be much higher this year because of changes in the marketplace.

You can accommodate changes to your start-up budget by including a contingency budget. Consider adding ten to twenty percent or more to your start-up budget for unexpected set-up expenses or changes to your working capital needs.

Start-up budget formula

Use this formula to safely calculate the amount of money you’ll need to start your business:

• Set-up costs + working capital costs (monthly costs x the number of months you’ll be short) + a contingency budget.
• Example: Start-up costs $200,000 + working capital $120,000 ($20,000/month x 6 months) = $320,000 to start and cover costs for 6 months. Add a 10% contingency to be safe which totals $352,000.

Take this total and calculate where this will come from:

• Personal savings.
• Bank finance.
• Investors.
• Government grants.
• Loan from friends or family.

Summary

Work out exactly how much you think you’ll need to start, with a realistic contingency to cover any cost blow outs. Remember to make a plan to pay for your personal living expenses while your business gets off the ground because if it won’t be able to pay you a salary initially. Figure out your household expenses to know exactly how much you’ll need each month.

You may have all the cash you need for starting a business. If not, then carefully consider all the options available to secure start-up funds.

Next steps

• Contact one of our friendly Business Relationship Managers to see how we can help your business.
• Conduct your market research carefully to determine how much money your customers will be willing to pay you. This helps to accurately forecast sales revenue.
• Explore government grants for small business owners in Hawaii.
• Contact the Small Business Administration Hawaii District Office for help to get your business up and running.

Building Competitive Advantage

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Identifying your competitive advantage

A competitive advantage is what your business does better than others. The smarter you can be about developing and promoting your competitive advantage, the better placed your business will be to succeed. The most common competitive advantages are:

• Low pricing: You’re able to supply the lowest-cost product.
• Specialization: You service a specific niche market better than other businesses.  
• Differentiation: You have the same product or service as others, but you deliver it a different way.

However there are a number of other ways to build a viable competitive advantage, especially when everyone in the same industry has similar prices, products and services.

Eight ways to build

1. Promote your staff

One of your best competitive advantages is your staff. The advantage of having friendly, knowledgeable, proactive staff shouldn’t be underestimated. The key is to make sure your staff are motivated, trained and successful. Help your staff by:

• Establishing clear performance standards.
• Starting incentive or bonus programs to reward staff for their successes.
• Encouraging employees to develop their product or service knowledge and paying for training.
• Learning what other great companies do and adopt any ideas that are relevant to your business.

2. Use your location

Be where your customers are located. For example, if you are a retailer and you don’t have a location that attracts foot traffic, you’ll be short of customers. You should also consider:

• Retail and customer location trends and whether you need to, relocate.
• Marketing your business with business-to-business accounts, free pick-up and delivery, drop-off points or wholesaling through other businesses with better locations.
• Encouraging customer interaction, such as via online communities, attending conferences or exhibiting at events.

3. Offer unique or exclusive products

You have an advantage if you can source products or deliver services that the competition cannot. If you’re competing against larger or similar businesses, establish a reputation for unique products. For example:

• Seek exclusive agreements with suppliers.
• Look overseas to find products or a brand that other businesses don’t carry.
• Find a location, contract, service, agreement or tender that only your business can deliver.

4. Have a great website

A website that is more attractive and easy to navigate than your competitors can be a distinct advantage. Can you create a better, easier online shopping experience? Here are things to consider:

• Focus on great design.
• Be aware of how search engines rank sites and be on the top.
• Use content marketing, such as guides, whitepapers or giveaways to build expertise and to have potential customers make contact.
• Use new technologies and marketing automation to gather, nurture and close any new leads.

5. Become a star

Your own image can be a competitive advantage. No one else has quite your mix of skills, and you can build a character owner image by having your name on as many materials as possible, including:

• Having your name or face associated with the business.
• Speaking at conferences as an expert.
• Becoming prominent in your community by volunteering on local boards.
• Becoming an authority in your field and a spokesperson for your industry.

6. Get to know your suppliers

Being on good terms with your suppliers and their sales representatives is an often-overlooked competitive advantage. You might find that they do most of the market research, develop new products, conduct customer analysis and provide nation-wide branding and advertising that enhances your credibility. A good relationship could provide:

• Better service and support. You might get promotional material, displays and signs or training for your staff in advance of everyone else.
• Better supply and faster delivery.
• Better return policy and customer support.

7. Form strategic alliances and joint ventures

One of the best ways to compete against other businesses is to form alliances and joint ventures. For example, by banding together with other businesses in your industry, you can often gain better group discounts from suppliers than you would if you ordered on your own. Joint venture marketing is another way of sharing advertising costs. By joining together with businesses from the same location, or same industry group you can help increase demand for the industry as a whole.

8. Deliver speed

People increasingly want quick service, so the faster you can deliver your product or service the better. Hold regular staff meetings on how to streamline your business processes and fulfill or exceed customer requirements without sacrificing quality of delivery.

Next steps

• Contact one of our Business Relationship Managers to see how we can help your business grow.
• Find out what your business does well.
• List your key competitors and outline what specifically you’ll do to challenge them.
• Always look for new competitive advantages. Go to conferences, research online, and look at what other industries are doing.

BUSINESS LOAN CALCULATOR

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If you need to borrow money, this calculator will estimate the cost of repayments for a business loan.

Note: Results are based solely on the information you have provided; product may not be available for all terms entered. These calculations are provided for illustrative purposes only and do not reflect any additional costs. This is not a credit decision or a commitment to lend. Please contact an experienced loan consultant for more accurate and detailed information.

BREAKEVEN CALCULATOR

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Calculating the breakeven point of your products is an important part of testing the feasibility of your business. Use this calculator to experiment with pricing, costs and time to find a combination that gives you the most viable solution.

If you know your overhead and the cost of production, you'll be able to work out how many products or services you need to sell to breakeven.

Darrell Avery, CRPC^®

Vice President, Financial Advisor

 

American Savings Investment Services

Phone: (808) 541-8634 
darrell.avery@asbinvestments.com 
Branches served: Ewa, Kalihi and Waipahu

Darrell has worked as a Financial Advisor since 1994 and has a Chartered Retirement Planning Counsel (CRPC) designation. He holds Series 24, 7, 64, and 65 securities registrations as well as Life, Accident and Health Insurance Licenses. 

He enjoys dirt biking, stand up paddle boarding, and golfing in his free time. Darrell is an active member of Mililani Basketball Association.

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